Families will pay more death duties by 2018 than at any point since the
high-tax era of the 1970s, the Institute for Fiscal Studies has calculated

The amount of inheritance tax expected to be paid by families in the next few years will reach a level higher than at any time since the early 1970s, according to calculations by the Institute for Fiscal Studies.

The respected think tank found that if the current inheritance tax arrangement – where 40pc tax is applied to assets above £325,000 per person, or £650,000 per married couple – remained in force, receipts would reach a 45-year high in four years' time, by 2018.

Its research focused on the amount of inheritance tax raised as a proportion of all tax income, stretching back as far as records were readily obtainable.

"This would bring receipts as a share of national income to a level slightly above the previous peaks in 2007–08 and 1986–87, as shown in the figure below, and would be the highest level of receipts since at least 1973–74," the IFS concluded.

The IFS added that the numbers of those paying IHT were also poised to quadruple, from just 2.6pc of those dying in the 2009-10 tax year to 10pc in 2018-19 (the red line, above).

The increased tax take derives from growth in the economy but primarily from the predicted rise in house prices.

The disclosures in the paper, which sought to put a price on the promise made by the Tories in their 2010 manifesto to raise the IHT limit to £1m, will increase the pressure on David Cameron to act.

The research, which forecasts one in 10 estates will be liable for IHT within the next Parliament, was prompted by a repeated pledge last week by the Prime Minister to raise the threshold to £1m, although without any indication as to when or how it could be introduced.

By the IFS calculations, if the £1m threshold had been implemented in 2010, it would have cost the Exchequer "at least" £1.8bn in that tax year – 2010-11 – bringing the tax take for that period down from £2.6bn to £0.8bn.

The numbers paying the hated tax would have fallen by three quarters. Had it been introduced, only one death in approximately 150 would attract the tax.

If the Tories were to keep their pledge and implement the £1m threshold now, the costs to the Exchequer would be far greater. "Given that IHT receipts are projected to increase sharply over the next few years an increase in the threshold to £1 million in, say, 2018–19 would cost considerably more than £1.8 billion," it said.

Much of the gain would go to those living in the expensive regions of London and the South East, the IFS predicted.

As part of its report the IFS suggested two policy alternatives. The Government could either abolish the tax altogether, "which would cost little more than increasing the threshold to £1m", it said. This would "simplify the tax system and get rid of an ineffective and unpopular tax which can be criticised in any case as a source of double taxation in cases where bequests are financed from earnings."

The more radical alternative would be to "move in a different direction" and tax the recipient "at progressive rates on the total amount of gifts and inheritances that they receive over their lifetime".

Such a system, the IFS claimed, was mooted by the Tories in the 1970s and exists in Ireland.

As The Telegraph has pointed out before, the amount of property-related tax – including IHT – is being forecast by the Office for Budget Responsibility to rise rapidly over the next five years.

This has led to suggestions that the longer Mr Cameron waits to implement the promised £1m threshold, the more costly it will become to implement.

The Tories have a history of promising inheritance tax breaks which subsequently fail to materialise. In November 1996, the then Chancellor Ken Clarke said: "This Government is committed to reducing and then abolishing capital gains tax and inheritance tax."

That was the Budget in which he increased the IHT threshold to £215,000.